Europe is just starting to turn
Quarterly reports suggest that Europe is coming back on line -- right as the U.S. becomes worse for business.
We're discovering something in these quarterly reports that are coming out now for the big industrials. We are discovering the importance of Europe coming back on line because Europe has, to a large degree, been a total black hole for pretty much every major company.
Europe has, in fact, been a savior this quarter for many companies, a talking point that allows the focus to be lifted from the stalling in the United States because of the paralysis stemming from Washington. So many companies made big initiatives in Europe going into the downturn in 2011 and they have then spent the last two years frantically right-sizing the operations or attempting to staunch the bleeding. That's contributing to what can only be described as a dramatic return to profitability for a continent of 730 million people and it's very much in its infancy.
When I listen to the big industrial companies like DuPont (DD), International Paper (IP) and PPG (PPG), I am hearing that the turn, or at least the end of the degradation, occurred literally intra-quarter. It's so early on in the turn that many international companies are just beginning to revise up their expectations for less of a degradation -- not an acceleration. The verbiage was best caught by Ford (F), which focused on the notion that the losses simply weren't going to be as big as they thought when they laid out the year.
Even as the European PMIs have been better and we have the beginning of an actual return to growth in countries like Ireland and Spain, the turn seems to have caught many analysts by surprise. The number revisions still haven't really occurred. Plus, the run up in the euro to $1.36 can only help the numbers going forward. Euro strength, again, was not in the numbers. That makes sense when you consider that a year ago the euro was still in question and two years ago this November we were expecting Spain and Italy to blow up, with peak rates in Italy occurring almost exactly two years ago next month.
I think that this turn is blotting out the short-term stalling that we are getting in the United States and, just to be sure, there is no doubt that there isn't a short-term stalling. The combination of the fiasco that is the Affordable Care Act -- and that's truly the fiasco in business that you see in the headlines -- and the shutdown of the government here has shaken the CEOs in this country. Most that I talk to have very little expectations that things will get better. It's a pox on both houses for certain.
Not everyone has seen a turn. Avnet (AVT), huge in Europe, just sees a stabilization. I would characterize Honeywell (HON) as seeing just a stabilization, too. Google (GOOG), which is huge in Europe, didn't even talk about anything good at all occurring. Given that about half of Google's business is currently in Europe, you can see how that company's estimates, still predicated on European weakness, may truly be guided up again. It makes you wonder what Apple (AAPL), with slightly more than $36 billion in sales in Europe last year -- more than a fifth of its revenue -- has to say when it reports next week.
But overall, there is a grudging recognition that Europe's become a much better place to do business at the exact same time that we are a much worse place to do business.
I sure wish that the politicians in Washington could see this turn, because it is downright embarrassing. But for the companies that expanded aggressively in Europe, the news is just beginning to turn positive and the first half of 2014 will give you some comparisons so radically positive that you can see why the money will still pour into international companies after this quarter's over.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL and F.
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Two laws we see in effect throughout the world must be recognized. The law of diminishing returns, and the human law of lowered expectations. The Internatioanl corporation models are all passe at this juncture and the lowering of wages from the addition of massive new numbers of cheap labor from the Asian Rim make our grandfathers and Jim's economic models useless. First the law of diminishing returns. The internationals have no real new concepts in production at this point other than cheap labor. And with cheap labor we see nothing new in efficiencies other than moving constantly to take advantage of the arbitrages created as they step down to the lowest common labor rate. In essence the country that allows its' workers to have the fewest rights and lowest wages get the jobs. And as these lower wages become endemic those workers will have less disposable income and less life choices to spend less on. Travel through Central America if you want to see where America and Europe are headed because that is where production facilities are going next. Diminishing returns will shrink Corporate revenue and profits which will in time lower share price as p/e's skyrocket. The compression at this point is as they say baked in the cake. Folks will make less spend less and their dreams, expectations, and plans will shrink accordingly. This is the New World Order and anyone with half a brain should recognize the inevitable. Like the Pink Floyd song says we have set our economic controls for the heart of the sun. JMHO
Rome....Believe you are correct about Bobo, and his Articles in past days..ie; China&Europe..?
Jubak also was blowing something about them within last week, stirring the Pot.
Best thing for advice, take 10 days of articles from all of them....Shake in a bag, not stirred..
See what falls out ??
Articles and analysts, are like the Markets; Forever changing and volatile, writing what sells.
Even when some of the Eurozone Countries started to stabilize; Others fell backward dragging everything back into the slime, All were pinning hopes on the IMF, Central Banks and last but not least actions taken in the U.S.
the problem with socialism is too many people don't really understand what it is. many think it is welfare , food stamps , and unemployment....but that is exactly what we have under global free market capitalism.
true socialism is socializing the NEEDS of society such as roads ,police, military, healthcare etc....
then use free markets for WANTS.......this makes for a better society
I'm doubt that they've come any closer to solving their PIGS problem(s).
It seems that we share a dual problem with our Euro neighbors. How do we decide how much that we are collectively entitled to and how in hell are we going to get others pay for it.
Even Fox Business-Com has an Article pointing out the scope and scale of the Problem.
"Banks for International settlements the derivative markets exploded as an international haven for speculative investments........rising fivefold to $684Trillion in 2008 from $127Trillion in 2002.......Like so many tulip contracts."
Seems like Socialism isn't the only thing breeding failure, laziness, stagnation, and contempt.
And that also is a Fact of History.
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